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HIGHLIGHTS FROM THE PODCAST:
3:53 - Lessons Robert Locke learned on accident to keep a resident 20 years + lessons from Spencer's experience
6:03 - #1: Buying the right house! No irreconcilable defects 9:18 - #2: Get it in great shape 11:07 - #3: Price it fairly - What types of residents will overpay? 14:53 - #4: Pride of ownership 15:58 - #5: Be on top of your maintenance issues 18:27 - #6 - Communicate effectively 21:22 - #7 - Appreciate your resident
Email us at [email protected] to let us know if you want to hear local or more national guests!
FULL TRANSCRIPT OF THE PODCAST AUDIO:Spencer Sutton: Now, this is something Robert Locke talked a lot about. Planting flowers, making sure the shrubs were trimmed and taken care of. I mean, make the house on the outside look attractive because that is the first thing people notice. We like to call this pride of ownership. Spencer Sutton: All right, everybody. Welcome back to another episode of The Birmingham Real Estate Investor podcast. I am your host, Spencer Sutton, and I am flying solo today. So Matthew is not here. He is out of town and Matthew's in charge of our company, which is called Evernest. We're a national property management company based in Birmingham, Alabama, but with offices in Atlanta and a lot of other places. Matthew's in charge of acquisitions. And today, we're out buying another property management company, growing that way. So, I think as of the end of this recording, as of the end of today, we will be managing somewhere around 4,000 properties around the country. Spencer Sutton: And so, this podcast really is a great way for us to share some of the insights that we've gotten from managing 4,000 properties over the years. And so we hope that you're enjoying this and the reason I'm coming to you this time like we're going to start delivering podcast episodes every week is that we do interview people once every two weeks and we wanted to start filling in additional episodes because we believe that there are some other things that we could share with you just based on our experience from almost 20 years of real estate investing that we can share with you, we can provide value to you. Spencer Sutton: And so, these episodes, these filler episodes probably are not going to be the 30 and 40-minute long episodes. They are going to probably be a little bit shorter and that's okay, but it's just an opportunity for Matthew and I to come on, share some thoughts, give you value. That's what we really want to do. We want to give you a lot of value, something that you can use either immediately or down the road. And anyway, so that's what we're doing today. So I'm going to record this podcast by myself. No guests, no Matthew. And I'm sure Matthew will be on at some point to do the same. But one thing I want to ask you before I begin is I would love to hear from you. And one of the things I want to hear... So, we're able to interview some great local investors, which is awesome, but I also want to ask you, and every once in a while, we'll sprinkle in some people from around the country. Spencer Sutton: I want to ask you what do you want to hear? Do you want to hear more interviews with local investors, experienced local investors? Do you want to hear more of some of the national guests who are doing it maybe around the country or from different parts of the country? I'd love to know that because obviously as we expand, we have more and more opportunities to meet and to get to know some great investors and how they're doing things around the country. Email me [email protected]. That's [email protected]. That will come directly to me. Matthew will get that, we read every email and let us know what you're really interested in. We'd love to hear from the audience and interview guests accordingly, whether we just stick to hey, local guests, which has been great, 100% great or bring in more folks from around the country. Spencer Sutton: So, that's the intro. Let's get started in today's episode. So today, I want to discuss something that I learned about several years back when I met a gentleman named Robert Locke. Now, Robert Locke lives in Atlanta. He owned a property management company called Crown Realty and one day I went to his house, sat down just to have some conversation with him. And we started talking about how to keep a resident for 20 years. And it really kind of blew my mind because he said he learned this by accident, but he started kind of looking at all the lessons over the 20-some odd years he had been managing property and he distilled it down to some key points. And those are the points I'm going to share with you today from our conversation. And then some from my own personal experience, because like to keep a resident... So if you're building a rental portfolio, probably one of the best things you can do is keep a long-term resident. Spencer Sutton: In my rental property experience, I have had residents that have stayed for 12 months and left, and I've had residents... It the longest I've ever had... I just sold a property a few months back and this resident had been in there for, I want to say 11 years. So, that's my experience like 12 months and 11 years. And I will tell you, having the resident in the home for 11 years is much more rewarding than having a resident in there for 12 months, one year, and then moving out, because there are all kinds of things that have to happen. And so the goal if you're trying to build a rental portfolio and building wealth through rentals, the goal is to build your systems and your processes so that you keep a resident in there as long as possible. Spencer Sutton: And so I was sitting down with Robert Locke, we were talking about this and I just learned some great stuff, and I want to share it with you. And I know it true from my experience, and so maybe this will be helpful to you. So, I'm going to go through seven different points, seven ways you can keep a resident 20 years. So, the first one may be very, very obvious, but after I have spoken with hundreds and hundreds of real estate investors, I don't think it's as obvious as people make it out, or as maybe I think it should be. And the number one point is to buy the right house. That's it. Buy the right house. I think a lot of times, investors get so enamored with spreadsheets and return projections, cap rates that they will go in and buy a house that they should not buy just based on what they believe the return is going to be. Spencer Sutton: So, buying a house is extremely important. It's going to impact how long that resident stays. It's going to impact your return long-term. So, for instance, if you get enamored with a return, you may be willing to buy a house that you think fits your criteria that is in a bad part of town, that is not going to rent easily for a number of different reasons. Maybe it has some things wrong with it. Maybe it's older than it should be. And you haven't really thought about how much repair and maintenance it's going to require. So, buying the right house is extremely important. So, what would be an example of buying the wrong house? So, I'll give you some examples. Let's say the home has a very funky layout, okay? If the house has a very funky layout, when prospective residents come to look at renting that house, that's going to be very, very obvious. Spencer Sutton: And if it has a very, very weird layout, then your audience or the people who are going to rent that house just automatically shrinks, okay? There's a reason why National Home Builders have specific floor plans that they do over and over and over again because people buy it. People like predictable, people like normal layouts. Okay? So layout maybe one. Maybe a steep driveway could be another one, right? I have a friend who flips houses, and he bought a house recently that had a horrible driveway. Now, he had a tough time selling that house. Same thing if you're trying to rent a house. If you have a steep driveway, it's probably going to take you longer to rent that house, and the resident may not stay there that long. Spencer Sutton: Then there are things like what we call white elephants. So, white elephants are things that you cannot ignore, but you can't do anything about like a white elephant, right? So, think about things like your house is on a very, very busy street. Maybe your house is next to power lines, or maybe there's a railroad track right behind it. When I was talking with Robert Locke, he said, "These are called irreconcilable defects." All right. And so when a resident comes to look at that property, I can promise you that is going to play a part in whether they say they want it or they don't. So, it's just going to take you longer to rent that house. So, number one, the way that you keep a resident for 20 years is you buy the right house. Spencer Sutton: The next thing is you get the house in great shape. That's number two. Get it in great shape. And now that doesn't mean you have to put crown molding everywhere, and you have to do granite countertops all the time, but you do want to get the house in great shape. And I know investors always want to save money, but I can promise you that if you just put a little bit more thought and time and money into your rehab, into getting the house ready, you're going to A, rent that house sooner and quicker and more than likely, you're going to keep that resident for a longer period of time. Now, when I first started buying rental houses, I was buying them in Birmingham, in an area we called Western, which is a rough area. I bought a bunch of older houses. And my only concern was getting it livable. Can someone live in this house? That is not a great strategy. I just want to tell you. Learn from my mistakes, that's not a great strategy. Spencer Sutton: So, you want to get the house in great shape. This is obviously when somebody walks into the house when a prospective resident is looking around and they see a house that is nice, then they're going to think, "This landlord is going to take care of this property," better than if they came in, it was like barely hanging on. Also, you're going to attract the best residents. Okay? You'll have multiple applications being filled out for that property. So, do a little bit extra on your rehab and getting that ready, and I promise you, it will pay dividends. So, that's number two. Spencer Sutton: Number three really, it goes right along with the other two, that just prices it fairly. I know that you're trying to make your numbers work and returns work, but you need to price it fairly. If you price it above the market, the market's always going to tell you. And so if you are not getting any showings, then that means more than likely, that your price is too high. Now, if you're getting a lot of showings, but no applications, then that means there's something wrong with the house. Again, it could be a white elephant, it could be something a defect, an irreconcilable defect in the property. But these are two things that you have control over, right? You can buy the property, you can fix it up the way it should be fixed up, and then you can price it fairly. Spencer Sutton: So, there are potentially two types of residents or residents who would rent out a property that was priced too high. Number one, someone with poor credit, or maybe they've had trouble in the past paying their rent. So, you'll get somebody who's willing to overpay just to get in the house. And you get all excited when you start thinking about getting somebody in there, especially if your house has been sitting on the market for 60 days. That's the first type. The second type of potential resident is somebody who moves into town and doesn't really have a good grasp of what they should or should not pay. And they end up paying too much. I can promise you those people will not stay there that long. They'll realize that they can get the same house, a bigger house, a better house for less money, maybe in the same neighborhood. All right, so pricing it fairly also is going to have a major impact obviously in how quickly you rent that property, and having a property sit on the market for 60, 90, 120 days is just costing you thousands of dollars. Spencer Sutton: All right. And we're also talking longevity, right? So, when renewal comes up, you really need to ask yourself the question, "Should I go up and rent? Do I need to go up and rent?" Here at Evernest, we reach out to our owners and we talk about that once renewal is coming due. I think about 120 days out, we start reaching out to owners and saying, "Hey, this lease is coming due, do you want to raise your rent? Do you want to keep it the same?" There are a lot of times that our owners will ask us for our opinion, and really depends on the market. Like if you're in a super hot area of town, a super hot market, then it probably makes sense to raise the price a little bit. I would say, not more than 5%. If you are not in a super hot, fast-growing part of town, then maybe you want to raise it just a little bit, or maybe you just want to keep it the same for another 12 months. Spencer Sutton: I know that I've had a lot of success. I had another resident that stayed nine years. And I honestly kept the rent the exact same that entire nine years. The area was pretty stagnant. It was at the beginning of the recession when I rented, I think 2009 and I was okay, actually, Evernest rented the property. I was okay. They would come to me... The company would come to me and say, "Hey, do you want to raise your rent?" I would say, "No, let's just keep it the same." So, price it fairly, and then think about your rent increases with a level head. Another thing I think that will help you rent the home quickly, and for a good price is putting some thought in time and money into the curb appeal of the property. Spencer Sutton: Now, this is something Robert Locke talked a lot about, a lot to me about, and he was talking about planting flowers, making sure the shrubs were trimmed and taken care of. Make the house on the outside look attractive, because that is the first thing people notice. We like to call this pride of ownership. So, if I'm driving in a neighborhood and I see a pride of ownership on a street block, that is a great sign for me. To me, it doesn't matter if the houses are rented or if they're unoccupied. If there is the pride of ownership, then that's a great signal. And it's a great signal to a potential resident if they pull up to your home, and they can tell that there's some type of pride of ownership, even from the landlord, right? So, it could be flowers, it could be the right types of shrubs, whatever the case is, I think it's super important to think about those things when you just step back and look at the property, it can be very, very important. Spencer Sutton: All right. Number five is to be on top of your maintenance issues. Be on top of your maintenance issues. This means that if you're a landlord and you are giving your resident, your resident your cell phone, then you need to be prepared to handle maintenance issues in a quick period of time. And so that means if you have a plumbing issue that comes up, you need to know who you're going to call. You need to have established that relationship. Probably, I would say you probably don't want to Google somebody for the first time and try to use them. Maybe it's somebody that you've used at your personal house, or maybe you already have several rental houses anyway, but you want to communicate and be on top of maintenance issues quickly. This is a big deal. The number one reason we see that residents do not renew leases is that they had a poor experience with maintenance. Spencer Sutton: And I'll tell you from a property management standpoint, this is the big struggle, right? Is that we have an owner that would be you, who is trying to make sure that he handles his investment wisely or her investment wisely, and on the other hand, we have a resident who needs something fixed and want it fixed ASAP. And so we're the property manager, we're in the middle. So, we absolutely see both sides of this, and we do tell our owners, we want to make sure that this gets handled as efficiently, effectively, and promptly as possible. And obviously, we want to take care of that resident because we want them to stick around. If you have two or three maintenance issues during the year, and they're handled quickly, if you're on top of it, you're calling, texting your resident, letting them know, keeping them informed. If there's going to be a delay, let them know that, then more than likely when they think about leaving, they're going to have second thoughts because you've taken care of things. Spencer Sutton: There's always a risk when a resident is going to move out, there's always a risk that they're not going to get taken care of as well if you have done a great job at this. And so, be on top of maintenance issues. The sixth thing is... Seems like a simple one, but it communicates efficiently. Your resident is your customer. Your resident is your customer and you're in the customer service business. All right? So that means you need to be prepared to communicate, take care of them. It's not always going to be about maintenance requests. They're going to have other things that come up that you're going to just need to take care of. Spencer Sutton: And really, this kind of brings up another point. I've been in my house a long time, my current residence, the one that I own and I'm okay if certain things don't work properly, but when you have a resident living in your home, a resident in your home, they're your customer. And they are not going to just kind of be okay with what maybe you as a homeowner would be okay with. And so, I'm just thinking of, for instance, if there's a... I'm just trying to think. Like if there's a lock or a door knob that doesn't work properly, like that may not bother me in my house. I may not really care all that much. We figure out a way around it, whatever. Maybe I try to fix it or something, but I'm not too worried about it, but somebody living in your house, they're going to expect that to be taken care of. Spencer Sutton: And so, your mindset has to be in a customer service mindset, all right? You're going to have to communicate efficiently and effectively, letting them know what you're doing, how you're taking care of things. And so I think that's very, very important to keep a resident. It kind of goes hand in hand with taking care of maintenance issues, but it could really be about anything. It could be about rent collection. One thing that we do at Evernest is we send out statements to our residents and letting them know that rent is coming due. Like their lease payment is coming due. Really, that's just to us a way of communicating. It's a courtesy to let them know probably like every other bill they get. It's just kind of like an invoice, even though it's not really an invoice, it's more of a reminder. Spencer Sutton: So we want to always open up lines of communication. I'll just be super transparent here. This is not something we've always done great with at Evernest early on in our early years as we grew rapidly, but we've got an excellent team and we are constantly... We used to never get five-star reviews from residents, residents, and applicants. But now, every single day we are receiving five-star reviews from people who've had a good experiences with our team because of the communication. So, that's really, really important. Spencer Sutton: And then the last one, I'm just going to say this one is one that Robert Locke was adamant about, and that appreciated your resident. So it's not just about taking care of maintenance, not just about communicating effectively. It's about appreciating them. What are you doing? So think of some ways, what are you doing to appreciate that resident, that resident? Spencer Sutton: So, one thing that we used to do, we don't do it anymore, but I know that Robert Locke also had a habit of doing this and that is to write thank-you notes, just write periodic notes to residents. We would write birthday notes. We would sometimes send them gift cards just at our expense. "Hey, here's a $15 gift card to Starbucks. We hope you enjoy it. Have a coffee on us," or whatever the case is. But appreciating that resident, these are little, small things that they'll remember for a long time. And I think all of these things combined... So I'm just going to list real quick. Buy the right house, get the house in shape, price it fairly, put some thought into curb appeal, be on top of maintenance issues, communicate efficiently, and appreciate your resident. I believe if you combine all of those, then what you're going to realize is that you keep your residents longer, your investment returns a greater yield to you. Spencer Sutton: And it'll just be a lot easier. Listen, the most stressful period for any landlord is when a resident moves out, right? So that's when you have to do a disposition, you have to get them their security deposit back. So there's increased communication. You have to rehab the house, get it ready. You have to show the property. You've got to take applications. You've got to get a lease signed. There are all kinds of things that happen when a resident moves out. So if you can have a property where your resident stays four years, five years, eight years, whatever the case is, it is going to be a much better experience for you. Spencer Sutton: Hopefully, this podcast has been helpful. Hopefully, those are some things that you can think about as you're building your rental portfolio for those of you out there who are, and just remember, please email me. I want to hear from you, [email protected]. More local guests, which we're going to continue to do, or would you like to hear even more from some national guests as well? Listen, if you haven't already subscribed, I wish you would do so. Please leave us a review on iTunes, just type out your thoughts. That is a great way that people when they're skimming and looking for podcast on real estate investing, they can maybe read some of your thoughts and that might encourage them to listen as well. All right. We will be back next week with another episode and we'll see you then.
